by bitkogan
Today, major indices in both Hong Kong and mainland China plummeted to their 2023 lows, leaving many in China bewildered.
Just a fortnight ago, state-run media outlets heralded a revival in the capital market and a surge in investment confidence. They underscored the significance of allowing the populace to earn from stock market investments.
With soaring expectations, people dove into the market. But rather than reaping gains, they faced a 5% plunge in indices. It may not be as drastic as what the “PLUG GUY” faced, but it’s still a letdown. True, under a communist regime, things could escalate to be even grimmer. The lingering question though, is where does the blame lie?
Unsurprisingly, the finger is pointed at foreign investors. They astutely withdrew over $44.5 billion in less than a fortnight, triggering the slide in stock values and the devaluation of the Chinese currency. The outflow mirrors that of October 2022, a period when the Hang Seng Index reached its nadir since April 2009, and the yuan dipped to 7.37 (currently at 7.27).
So, why the foreign exodus?
First, the allure of U.S. interest rates. With soaring yields in the U.S., capital is naturally being redirected stateside. Yet, Chinese media assert that American media outlets have been persuasively urging foreign investors to pull out. It may seem laughable to us, but they’re dead serious.
Second, China’s own economic health. Country Garden, the colossal developer, defaulted on two dollar bond coupons due on Aug. 6, cumulatively worth $22.5 million. They’re now in talks with investors.
Country Garden’s magnitude dwarfs Evergrande, and real estate was once China’s economic linchpin. Presently, it’s at the heart of a credit calamity.
Adding to the woes, July saw a paltry sum of 345.9 billion yuan in new loans, a figure not seen since 2009. It paints a stark picture of the real estate and broader economic downturn. The lending well has dried up.
Electric vehicles were once viewed as China’s next economic engine. But the sector is niche and highly automated, offering limited job prospects.
Intriguingly, youth unemployment figures have vanished from publications. In yesteryears, China’s youth zealously launched internet startups, only to be later snapped up by giants like Tencent or Alibaba. But regulatory clampdowns halted this trend, and tech investments took a hit.
So, what lies ahead?
Currently, the state is pulling all stops to mitigate the crisis. State banks have been ordered to offload dollars to buoy the yuan, and there’s a suspected influx of capital into the stock market to replace the foreign void. Today’s early trading downturn was likely stemmed by state interventions.
In the short run, this might offer relief. That’s why I’m not overly concerned about the 08/30 $85 puts I sold on BABA (9988) in Hong Kong. But the broader sentiment is bleak, with optimism dwindling, even in local WSB-esque circles.